This invention relates to the calculating and displaying of commissions relating to the trading of financial instruments. Specifically, this invention relates to the calculating and displaying of commissions charged for trading variable or fixed interest-rate-related instruments—e.g., United States Treasury Bonds, Notes, or Bills, United Kingdom Gilts, European government bonds, and emerging market debts, swaps, repos, etc.
In non-electronic trading of interest-rate-related instruments, two classes of individuals are typically involved in the trading: traders and brokers. Typically, traders purchase or sell the securities or instruments. Brokers match traders acting as buyers to traders acting as sellers in order to facilitate the purchase or sale of the interest-rate-related instrument. The purchase, sale, or other transaction involving the interest-rate-related instruments is known, and referred to herein as a trade.
Historically, one of the problems associated with this system was the lack of direct communication between the two traders transacting the trade of the interest-rate-related instrument. This lack of direct communication allows the broker to fictionalize one side of the trade to the counterparty on the other side of the trade. This fictionalization allows the broker to decrease the actual spread between a buy and a sell position while maintaining the positions of the parties as perceived by the parties themselves.
For example, assume that a seller had taken a position that he would not sell a particular interest-rate-related instrument for less than $50 per instrument, while the buyer had taken a position that he would not pay for more than $48 per instrument. At this point in the negotiation, the seller may indicate to the broker that he would accept $49 per instrument while the buyer may indicate to the broker that he would pay $49 per instrument. Nevertheless, the broker may not communicate the respective communications to the respective counterparties. Rather, the broker may inform each counterparty that the other is steadfast in his respective position. Alternatively, the broker may indicate a slight movement, either to an offer to buy of $48.50 from the prospective buyer or to an offer to sell of $49.50 from the seller, or both. Whether the broker has only communicated the first, unchanged, offer or a slightly changed offer, the respective traders may transact the trade of the interest-rate-related instrument at a price other than the price they agreed to. In this particular example, the buyer may believe that he must pay $50 (or $49.50) while the seller may believe he will receive only $48.00 (or $48.50). The $2.00 (or $1.00) between the amount actually received and the actually amount actually paid in each trade becomes excess profits, for the broker over and above the known brokerage fee. Further compounding the problem may be that excess broker profits and the concomitant distortion of the true market price based on the excess profits, are concealed from the buyer and seller.
A similar problem may exist in electronic trading of interest-rate-related instruments as well. In electronic trading, the trading logic used by the trading system or platform (which operates similarly to a voice broker in non-electronic trading) may not be fully disclosed by the system or platform. This lack of full disclosure by the electronic trading system prevents the customers (similar to traders in non-electronic trading) from being fully aware, until perhaps a much later time, of the brokerage charges being charged to them by the electronic trading system.
It would be desirable to provide an electronic trading system and method for the trading of interest-rate-related instruments that fully and clearly discloses the brokerage fees charged to the customers.
It would also be desirable to provide an electronic trading system and method for the trading of interest-rate-related instruments that fully and clearly discloses the brokerage fees charged to the customers in real time. “Real time” should be understood to suggest immediacy, subject only to normal electronic processing delay and interruptions. Whether or not a user experiences a significant delay before receiving information or a response in real time (in this context) may depend upon the capabilities of the user's system, the server system and any intervening network, or the efficiency of an external data source.
It would also be desirable to provide an electronic trading system and method for the trading of interest-rate-related instruments that informs the customers of the factors which form the basis for the calculation of the brokerage fees.
It would also be desirable to provide an electronic trading system and method for the trading of interest-rate-related instruments that provides an opportunity to customers to influence the factors for the calculation of the brokerage fees charged to the customer.